Mercer Insights

Challenging the Norm - Debunking the Spending Rule Convention

Challenging the Norm – Debunking Spending Rule Convention explores the spending rules most commonly used to govern annual distributions from educational and community foundation endowments. Mercer’s analyses illustrate that the conventional rule of using a 3-year average of prior market values results in distributions that are more volatile from one year to the next than a 5-year/20-quarter average or certain hybrid rules. It is Mercer’s contention that a spending rule that limits year-over-year volatility of distributions is beneficial and, further, that institutions should be able to tolerate more volatility in returns if they use a spending rule that limits the volatility in spending from the endowment.